Dhakaforex

26/10/2016

26/10/2016

Daily Brexit Briefing: May Eases on Carney, UK GDP Ahead
Talking Points

Research group saysUK facing £84 billion black hole in its public finances.
BOE Governor Mark Carney’s future in focus.
Trade Minister says UK needs to reach EU deal before Brexit.
GBP/USD steady but FTSE 100 loses ground.
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Whoever thought that the Pound and major London-listed stocks were beginning to shrug off Brexit developments and focus instead on UK economic fundamentals may have to reconsider. The UK currency was modestly higher on Wednesday, with GBP/USD gaining 46 pips to 1.2234 late in the European day; while the FTSE 100 index dipped to 6,918 – its lowest level since October 3 – before the losses were pared.

Sterling was helped, ironically, by a report from the Resolution Foundation arguing that the UK could face an £84 billion black hole in the country’s public finances in the wake of the Brexit vote. If the research group is right, that could mean higher government borrowing, rising UK sovereign bond yields and therefore more support for the Pound. The yield on the benchmark 10-year Gilt duly climbed to 1.150% from 1.089% late Tuesday, helping the currency to recover.

The Pound was helped too by a report suggesting that Prime Minister Theresa May has stepped back from earlier comments interpreted as criticism of Bank of England Governor Mark Carney. Speculation that Carney is considering leaving the BOE in 2018 rather than completing his full eight-year term that ends in 2021 has put pressure on the currency so support from the Prime Minister was seen as positive.

So too was Carney’s testimony to UK lawmakers in the House of Lords Tuesday, when he suggested that the inflationary impact of the Pound’s decline could encourage him to vote against any further interest rate cuts. The BOE’s Monetary Policy Committee next meets to consider UK rates on November 3 so any change then seems unlikely.

However, there are negatives too for the Pound. UK Trade Secretary Liam Fox told another committee of lawmakers Wednesday that the difficulties in concluding an EU-Canada trade deal showed the importance of the UK reaching an agreement over its future relationship with the EU before it leaves. That said, doubts that such an agreement can be reached are widespread.

Moreover, mortgage approvals data from the British Bankers Association revealed a 14.9% fall in September year-over-year, while the Centre for Economics and Business Research argued that London property prices are set to fall next year as uncertainty about Brexit dampens the UK housing market. Both reports could be seen as implying that monetary policy could yet be loosened, a negative for the Pound.

Ahead, the economic data is set to pick up substantially in the form of the UK 3Q GDP figure. In a period encompassing July 1st to September 30th, this data will offer the first comprehensive assessment of the economy post-Brexit (June 23rd). Expectations are set low with a modest 0.3% expansion forecast for the period (previous was 0.7%) and a hold at the second quarter’s 2.1% annual pace. Barclays will also offer up its 3Q earnings figures following this past session reports by Lloyds and GlaxoSmithKline.

26/10/2016

Gold Technical Strategy: Longer-term bullish > $1,200; intermediate-term bearish below $1,285.
Gold prices have attempted to recover after the early-October sell-offs, but sellers continue to respond to each new high with more selling; indicative of a market seeking out longer-term direction.
If you’re looking for trading ideas, check out our Trading Guides.
In our last article, we looked at price action in Gold as prices attempted to claw their way back from the out-sized hit taken earlier in the month of October. But as we noted in our prior article pertaining to ‘negative cycles’ in Gold prices this year; with no clear sign that the Federal Reserve may be near relenting on rate hike plans for 2016, Gold prices may see more downward pressure before the top-side trend might be able to run-higher.

Since that last article, price action in Gold has been rather erratic with multiple tests off of short-term support at $1,260, most recently on Monday of this week. After that most recent support-check, price action moved up to set a new short-term ‘higher-high, but sellers re-entered shortly thereafter, establishing a fresh short-term level of resistance around the $1,275-level. Also of interest in this zone is the projection of the prior bull-flag formation in Gold; and this serves as an example of prior support showing up as new potential resistance in a bearish technical formation.

This sets up the uncomfortable situation in which the longer-term trend and the near-term move are at odds. While the longer-term trend still retains a bullish quality above $1,200, the near-term trend is and has been bearish. For those looking to set up swing and longer-term positions, they’d likely want to wait for more confirmation of top-side continuation potential before looking to get long. Meanwhile, for traders with shorter-term approaches, the bearish move ‘could’ be workable provided risk management is in check. Meaning, traders would likely want stops inside of that recent swing high around $1,275, with targets tucked inside of the prior support hit at $1,250.

Swing positions with stops above the short-term highs around $1,276 would entail approximately $10 of risk with only $6 of reward potential (to near-term support). And in a market as coagulated as Gold is at the moment, such a risk-reward could be considered utterly unattractive.